Greek borrowing costs spike as EU finance ministers meet

Eurozone finance ministers are meeting to try to resolve a dispute over how to
involve private investors in a second bailout package for Greece as the
country's borrowing costs jumped following a shock S&P downgrade.

Eurozone finance ministers were set to meet today to try to resolve a dispute over how to involve private investors in a second bailout package for Greece.

4:01PM BST 14 Jun 2011

The yield on 10-year Greek government bonds spike to a record high of more than 17pc as investors demanded a higher return to cover the risks of holding the debt.

S&P warned that a move to restructure its debt would be considered a default and it reduced the long-term rating on Greek sovereign debt from B to CCC – only four notches above default and the lowest credit rating of any country it covers.

The downgrade has helped entrench the market view that Athens will have to restructure its debt.

Eurozone finance ministers are meeting ahead a gathering of EU leaders to finalise a new rescue package for Greece at a Brussels summit on June 23-24, but differences remain over how to involve private creditors.

Traders are alarmed by the division between Wolfgang Schaeuble, Germany's finance minister, who wants Greek bondholders to extend the maturities on the seven year debt, and Jean-Claude Trichet, president of the ECB, who has argued that any restructuring is the same as a default.

The downgrade triggered an angry response from the Greek finance ministry which claimed S&P's decision was made on the back of "rumours and statements by representatives of the European Commission and European Central Bank".

The ministry said: "The decision ignores the intense consultations taking place between the same institutions and the International Monetary Fund aimed at designing a viable solution that will cover the financing needs of Greece in the coming years."

The statement added that the Greek government had shown "determined efforts" to "avoid at any costs" a default or restructuring of its debt repayments, as well as a "strong desire" to stay within the eurozone. It pointed to the tough fiscal strategy submitted to the Greek Parliament last week as evidence of its commitment to economic reforms.